3
min read

How to Set up an LLC for Rental Properties

While it's possible to personally own and operate your properties, it's best to set up an LLC for asset and legal protection.

If you have recently been researching different types of real estate investing strategies and looking to delve into the world of managing rental properties, there is a high chance that you’ve likely stumbled upon the long list of pros and cons of setting up an LLC for a rental property.

 

If you’re new to the business world, the idea of an LLC and setting one up can feel overwhelming. However, you will be happy to know that it can be done very easily. On top of that, setting up an LLC for a rental property isn’t always a necessity when it comes to owning and managing rental properties. 

 

Though, it can be beneficial for your real estate business. 

  

What Is An LLC?

An LLC, also known as a “limited liability company” offers many key advantages that both corporations and partnerships have access to. Mostly, an LLC helps to shield your assets and personal liability such as your personal bank accounts, car, home, etc. 

 

It shields all of these things from being used as financial assets in a court of law if you are to find yourself in a lawsuit as the result of your rental property business. An LLC protects all of your personal assets and completely distinguishes your rental property business as its own asset. 

 

However, you will still be able to enjoy the benefit of avoiding corporation taxes. 

  

The Pros and Cons of LLC for Rental Property

Let’s take a look at the pros and cons of LLC for rental property.

 

Pros

  • Protects personal liability
  • Protects personal assets
  • Provides tax benefits

 

Cons

  • Annual fees for maintaining the LLC
  • Set up fees for creating the LLC initially
  • Filing paperwork to form the LLC for rental property
  • Creating multiple bank accounts for multiple LLCs

  

How to Set Up an LLC for Rental Property

As per usual, with rental properties, landlord-tenant laws, and structuring a business, the exact steps that you will need to take to form an LLC for rental property will vary from state to state.

 

It is very much recommended that you consult rental law and legal counsel in your state to make sure that if you make the decision to set up an LLC for rental property, it is done legally in compliance with your state’s laws.

 

  1. Consult your legal counsel - They will be able to determine if setting up an LLC for your rental properties is the right step for your business. They can help you make all of the necessary steps.
  2. Decide on a business name and register it - You will need to create a business name that is entirely unique to your business and register it. You will need to provide documentation. 
  3. Get an EIN - The state and federal tax ID number you will need to create an LLC is called an Employer Identification Number (EIN). This number works much like a social security number although for your business.

Open a business bank account - You will need to separate your business finances from your personal finances to stay legally compliant.